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For all the
BBC’s ability to enlighten and entertain the nation, nothing quite matches its
unique ability to shoot itself in the foot.

Having
resisted, where possible, attempts by the Commons Public Accounts Committee to
inject National Audit Office investigators into its inner workings, the row
over a huge pay-off to a failed Director-General and further pressure from the
PAC forced the BBC Trust last November to invite the NAO to inquire more
broadly into severance payments for executives.

Actually, we
now realize that the BBC employed two failed Directors-General last autumn:
George Entwistle, who was paid a year’s salary (plus other benefits that took
the total above £500,000) when he resigned over the Savile and McAlpine
scandals; and Mark Thompson, who was being paid £102,000 to go on garden leave
in September, so as to allow Entwistle to step into his job.

In its
report
(bbctrust/assets/files/pdf/review_report_research/severance_benefits.pdf) the
NAO exposes an extraordinary story. The BBC operated a very generous severance
scheme for departing executives. Some qualified for up to 24 months’ salary,
depending on length of service; PILON (payment in lieu of notice) was routinely
given, even when notice had been given and served many months before departure;
top-ups were not uncommon (one departing executive, who was moving to a
£200,000 a year job at Goldsmiths, received a £266,000 contribution to his £4m
pension pot, in addition to £600,000 in severance).

More than
one-third of the 664 senior managers at the BBC as at December 2010 had
departed by February 2013. Two-thirds of these received severance payments: the
average amount was £164,000, including PILON of £53,000. In a sample of 60
managers, the NAO found that 60% had received PILON, and that 40% of these had
received more than their maximum contractual entitlement.

Under fierce
pressure from external critics and the BBC Trust, BBC executives agreed in
October 2008 to reduce the maximum redundancy entitlement for new entrants to
12 months, not 24 months: but 85% of current BBC managers still qualify for the
24 month maximum.

Since the
new Director-General, Tony Hall, arrived in April 2013, he has proposed that
the maximum be reduced to twelve months’ pay (six for him, actually) or
£150,000, whichever is the lesser (a formula not yet accepted, and which anyway
does not apply to 15 departures already in the pipeline).

The BBC
Trust roundly blamed the BBC Executive for this lamentable state of affairs,
referring to an “entirely unacceptable and deeply worrying failure of the BBC
Executive and its Remuneration Committee to follow agreed policy and
entitlements”. The Executive – whose membership has substantially changed in
recent months – has accepted that it failed to exercise adequate governance. It
has promised to investigate past failures and report to the Trust.

Of course,
this is not the end of the story. Accusations of failure properly to inform
were levelled at Mark Thompson by Trust members Lord Patten and Anthony Fry. He
immediately replied that the largest single settlement – to remove his own
deputy, Mark Byford, at a cost of some £1 million – had been approved in
outline and principle by a non-executive member of the BBC board, Marcus Agius,
and notified to the Trust (who had no say in the matter). That Byford was given
8 months’ notice of his impending departure was not allowed to stand in the way
of his receiving a full 12 months’ PILON.

The root of
the problem lies, not in buck-passing, or even in the rickety governance
structure of the BBC. It goes back to Thompson’s original appointment as
Director-General, at a salary 50% above that of his predecessor, Greg Dyke
(ostensibly, to compensate him for giving up the equally lucrative – and ludicrous – salary he received as CEO of
Channel 4, our other publicly owned broadcaster).

Inevitably,
salaries of other BBC bureaucrats floated up to close the gap to his £665,000
(which was subsequently inflated further to compensate him in cash for limits
imposed on BBC pension contributions). Job titles were created that then
disappeared when the occupants were paid off: the BBC no longer has a Deputy
Director-General, or a Chief Operating Officer.

A Marketing
Director was appointed who was paid off with nearly £400,000, despite not
qualifying for any redundancy payment, having served less than two years when
Thompson made the decision to remove her. This problem was got around by giving
her eight months’ notice, which neatly took her over the 24-month qualifying
period, even though a month after announcing this arrangement, the executive,
Sharon Bayly, took maternity leave.

Sir Michael
Lyons, when he was chairman of the Trust, maintained a steady pressure on
Thompson in relation to management salaries and numbers. Individual pay levels
were frozen, bonuses were abolished for top managers, perks were removed for
incoming managers, and a steady flow of exits instituted.

Yet this
served mostly to demonstrate how completely salaries and numbers had “got away”
from the Trust. The BBC tries to mitigate the negative publicity over the NAO
report by referring to the “savings” being achieved annually (around £17
million) from having reduced the number of top managers by a third. Yet surely
– unless the BBC is being much worse managed than previously – the correct
conclusion must be that the BBC was simply wasting that £17 million every year.

Moreover,
even as it was bribing managers to depart – a third of those in the corporate
division and the finance and business directorate left in three years – the BBC
was still hiring. Although the NAO report does not spell out the exact numbers,
it would appear from their analysis that whilst 450 senior managers have left
since 2005, some 150 have been hired. Indeed, in the last eight years,
according to the NAO, the BBC has spent £369 million on making 7,500 staff
redundant. Yet on even the most optimistic version of the employment figures,
the reduction in BBC staffing is less than half that total.

Indeed, the
NAO allows itself to fall for an old BBC trick, which is to compare oranges and
apples. It notes that in the BBC’s last licence fee settlement, in 2010, it
promised a major reduction in staff. But the 3,700 reduction reported by the
NAO (using BBC figures) goes back to 2005, before the BBC sold off one of its
labour-intensive service businesses, which accounted for the only large
reduction in BBC employment.

Even on the
figures cited by the NAO, employee numbers reduced by just 115 between 2008 and
2011. And cross-checking with the BBC’s annual reports would have allowed the
NAO to see figures for BBC employees up to 3,000 higher than the ones in this
report. This week’s annual report for 2013 refers to 21,282 employees, not the
19,649 cited by the NAO

As for the
Trust, despite being charged with delivering value for money for the licence fee
payer, it never got a handle on severances. It chose not to intervene on
severance policy (which it assumed was being approved by the non-executive
members of the BBC Executive), and never realised that this policy was anyway
as often honoured in the breach as in the observance.

Yet some of
the biggest pay-offs were public knowledge, and were well-known to the Trust
before they became public. Caroline Thomson was paid £680,000 to go away after
failing in her bid for the top job, which represented two years’ salary: yet
she was perfectly willing to work her notice, and has recounted how Lord
Patten, chairman of the Trust, even sat her down and recommended the
head-hunters where he was a non-executive, so as to help her find a new job.

Now, of
course, the Trust is requiring that the Executive report annually on pay and on
severances, whilst the new policies – including abolition of PILON and
reductions in notice periods where employment has been found elsewhere – are
implemented. Astonishingly, these include BBC Human Resources now keeping “a
detailed record of all redundancy payments and severance payments”.

The NAO
established that there were overlapping and incomplete approval processes.
Until January of this year, divisional managers could approve severances
costing up to £500,000. Now, everything above £75,000 will have to go through
the BBC Senior Management Remuneration Committee, and anything out of the
ordinary will go up another level, to the non-executives who form the Executive
Remuneration Committee.

Perhaps the
most startling feature of the BBC’s session last week with the Commons Public
Accounts Committee was the admission by the BBC’s Director of Human Resources,
Lucy Adams, that she realised when she arrived at the BBC that severance policy
was not always being followed, with unnecessarily large payments being made:
but she accepted that this was part of the BBC “culture”.

When Rupert
Murdoch referred to the culture of Fleet Street including payments to
informants, he was excoriated for turning a blind eye to illegality. Given that
BBC executives were conspiring to hand out and receive money for which there
was no entitlement (out of 60 cases investigated by the NAO, 14 had received
such payments), it is not surprising that some MPs have been calling for police
investigation of possible fraud or misconduct in public office.

What is
clear is that the “culture” of a whole generation of BBC executives was to have
little regard for the decent opinions of mankind. Unique amongst them was Roly
Keating, a former Controller of BBC2, who returned his severance cheque (less
the amount deducted for tax) when he heard what the NAO had concluded. He had
left the BBC to take a lower-paid job at the British Library, but had
nonetheless received a gross amount of £375,000. Both Mark Thompson and Lucy
Adams were personally involved in what the NAO described as a “seriously
deficient” process.

There has
always been, in any organisation, a requirement to mitigate any redundancy
payments by seeking alternative employment and otherwise working out notice
periods. When the BBC allowed an executive to receive 12 months of PILON,
having already given him14 months’ notice of his projected last day at work (as
happened with our man now at Goldsmiths), was that the kind of abuse that
managers might encourage if they thought that they, too, might one day benefit
from such a scam?

And the NAO
report does not even include the £800,000+ payment for John Smith, who departed
BBC Worldwide to go to Burberry’s as chief operating officer earlier this year.

Thompson
will be giving evidence to the PAC later this year. He has many questions to
answer. Perhaps the most important is why he allowed such a state of affairs to
prevail during his period at the top of the BBC, seeming not to realise its
scandalous dimensions. The MPs will not let him off as lightly as Nick Pollard
did in his report on the Savile affair. Nor should they. The new executives
show signs of wanting to take on the huge task of
restoring the BBC's financial reputation and they will need all the help they
can get.